Chilean tax reform sets royalties, tax for copper producers

The Chilean government has introduced a tax reform bill that, among other measures, would raise mining royalties on companies that produce more than 50,000 tonnes per year of copper, according to a release from the country’s ministry of finance

The tax reform consists of four legislative initiatives.

The first two - which concern restructuring the income tax and establishing measures aimed at reducing tax exemptions - will be presented to Congress in July.

The second two - which aim to set a new mining royalty as well as corrective taxes - “corresponds to a package of indications that will be introduced to the bill on Mining Royalty that is currently being processed in the Senate,” the Chilean government said in a separate notice on its website.

The royalty project also has two components.

The first is an ad valorem tax with effective rates between 1% and 2% for companies that produce 50,000-200,000 tonnes of copper per year. For companies producing above 200,000 tonnes per year, rates will range from 1-4%, according to the release.

The second is a tax on mining income, “with rates of between 2% and 32% on operating profitability, for copper prices between $2 and $5 per lb,” according to the announcement.

In the past year, London Metal Exchange’s three-month copper contract has ranged between $4.86 per lb at its peak on March 7 and $3.42 per lb at its lowest point on July 6.

The new royalties “will increase the income earned by all Chileans as a result of the exploitation of non-renewable resources, such as copper, without discouraging investment and development in this sector,” the government notice stated. Meanwhile, the corrective taxes aim to “[promote] the preservation of the environment, reducing emissions, the development of a healthy life and balanced territorial development.”

Chile is the world’s largest copper-producing country, having produced an estimated 5.70 million tonnes of copper in 2020, according to a United States Geological Survey. The country also holds the largest copper reserves in the world, at 200 million tonnes.

Meanwhile, the changes to the income tax system include a new tax development rate of 2%, which a company “can deduct if it proves that it has allocated part of its investments to finance projects related to innovation and development... among others that imply investment in productivity,” according to the release.

Chile’s government estimates that, if approved, these measures will increase the country’s tax revenue to 0.6% of its gross domestic product in 2023, rising to 4.1% of its GDP within four years.

“This is a reform that occupies a very central place on the government’s agenda… because it also generates on the part of the government a responsibility for a good use of resources,” finance minister Mario Marcel - who introduced the bill alongside president Gabriel Boric - said in a statement on July 1.

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